SPS(SPSC) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company's total assets increased to $1.11 billion, primarily driven by acquisitions which boosted goodwill and intangible assets. Revenue for the first quarter of 2025 grew 21% year-over-year to $181.5 million, resulting in a net income of $22.2 million. Cash flow from operations was strong at $40.0 million, though overall cash decreased due to significant investment in business acquisitions and share repurchases Condensed Consolidated Balance Sheets As of March 31, 2025, total assets were $1.11 billion, an increase from $1.03 billion at year-end 2024. This growth was primarily fueled by a significant rise in goodwill to $533.9 million and net intangible assets to $252.3 million, resulting from recent acquisitions. Cash and cash equivalents decreased substantially from $241.0 million to $94.9 million, reflecting cash used for investing and financing activities. Total liabilities increased slightly to $188.1 million, while total stockholders' equity grew to $920.9 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $94,921 | $241,017 | | Accounts receivable, net | $63,390 | $52,035 | | Goodwill | $533,940 | $399,180 | | Intangible assets, net | $252,280 | $181,294 | | Total assets | $1,109,050 | $1,031,230 | | Total current liabilities | $153,424 | $146,684 | | Total liabilities | $188,129 | $176,540 | | Total stockholders' equity | $920,921 | $854,690 | Condensed Consolidated Statements of Comprehensive Income For the three months ended March 31, 2025, revenues increased by 21.4% to $181.5 million compared to the same period in 2024. Gross profit rose 27.1% to $124.6 million. Net income grew 23.3% to $22.2 million, with diluted earnings per share (EPS) increasing to $0.58 from $0.48 year-over-year Q1 2025 vs. Q1 2024 Performance (in thousands, except per share amounts) | Metric | Q1 2025 | Q1 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $181,549 | $149,576 | +21.4% | | Gross Profit | $124,635 | $98,089 | +27.1% | | Income from operations | $25,956 | $15,403 | +68.5% | | Net income | $22,196 | $18,003 | +23.3% | | Diluted EPS | $0.58 | $0.48 | +20.8% | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased from $854.7 million at the end of 2024 to $920.9 million as of March 31, 2025. The increase was primarily driven by $22.2 million in net income and $13.1 million in stock-based compensation. This was partially offset by $40.0 million in common stock repurchases. Additionally, treasury stock was used as part of an acquisition consideration - Key activities impacting stockholders' equity in Q1 2025 included net income of $22.2 million, stock repurchases of $40.0 million, and the reissuance of treasury stock valued at $37.7 million for an acquisition[15] Condensed Consolidated Statements of Cash Flows For Q1 2025, net cash provided by operating activities was $40.0 million, an increase from $34.1 million in Q1 2024. Investing activities used $147.8 million, primarily due to a $141.6 million business acquisition. Financing activities used $39.0 million, largely for $40.0 million in stock repurchases. These activities resulted in a net decrease in cash and cash equivalents of $146.1 million, ending the period with $94.9 million Summary of Cash Flows (in thousands) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $39,983 | $34,064 | | Net cash used in investing activities | ($147,786) | ($2,945) | | Net cash used in financing activities | ($38,954) | ($14,889) | | Net decrease in cash | ($146,096) | $15,556 | | Cash at end of period | $94,921 | $234,637 | Notes to Condensed Consolidated Financial Statements The notes detail significant financial events, including two major business acquisitions (Carbon6 and SupplyPike) that substantially increased goodwill and intangible assets. Revenue is primarily recurring (95%) and domestic (85%). The company actively repurchased shares and managed its stock-based compensation plans. EPS calculations and other financial details are also elaborated Note B – Business Acquisitions SPS Commerce acquired Carbon6 Technologies, Inc. in February 2025 for a total consideration of $209.3 million, comprising $141.6 million in cash and $67.7 million in stock. This acquisition added approximately $129.6 million to goodwill. The company also finalized the purchase accounting for the July 2024 acquisition of SupplyPike, which had a total consideration of $205.8 million and added $138.1 million to goodwill - On February 4, 2025, the company acquired Carbon6 for $209.3 million, consisting of $141.6 million in cash and 378,100 shares of SPS common stock valued at $67.7 million[30] - The acquisition of SupplyPike in July 2024 for $205.8 million was finalized, with goodwill determined to be $138.1 million[35][38] Unaudited Pro Forma Financial Information (in thousands) | (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Revenue | $185,730 | $158,120 | | Net income | $28,382 | $13,111 | Note C – Revenue Total revenue for Q1 2025 was $181.5 million. Recurring revenues accounted for 95% of the total at $172.3 million, a 23% increase from Q1 2024. Fulfillment services remain the largest revenue stream at $152.6 million. Geographically, 85% of revenue was generated from customers within the United States Revenue by Product Type (in thousands) | Revenue Type | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Recurring revenues: | | | | Fulfillment | $152,631 | $121,853 | | Analytics | $13,702 | $14,014 | | Other | $5,996 | $3,817 | | Total Recurring | $172,329 | $139,684 | | One-time revenues | $9,220 | $9,892 | | Total revenue | $181,549 | $149,576 | - Domestic revenue (U.S.) constituted 85% of total revenue in Q1 2025, up from 83% in Q1 2024[40] Note H – Goodwill and Intangible Assets, Net Goodwill increased to $533.9 million as of March 31, 2025, from $399.2 million at year-end 2024. The increase is primarily due to a $129.6 million addition from a business acquisition and a $3.9 million remeasurement from a prior acquisition. Net intangible assets, mainly subscriber relationships and developed technology, grew to $252.3 million with a weighted average remaining amortization period of 7.1 years - Goodwill increased by $134.8 million during the quarter, primarily from business acquisitions[56] - Net intangible assets increased to $252.3 million from $181.3 million at the end of 2024, with future amortization expense for the remainder of 2025 estimated at $29.5 million[57][58] Note J – Stockholders' Equity The company continued its share repurchase activity, buying back 281,001 shares for $40.0 million in Q1 2025 under its 2024 program. As of March 31, 2025, $60.0 million remained available for future repurchases under this program, which expires in July 2026. Additionally, 378,100 treasury shares were re-issued as part of the Carbon6 acquisition Share Repurchase Activity - Q1 2025 | Metric | Value | | :--- | :--- | | Number of shares repurchased | 281,001 | | Total share repurchased cost | $40.0 million | | Average cost per share | $142.35 | - As of March 31, 2025, $60.0 million was available for future repurchases under the 2024 program[62] Note K – Stock-Based Compensation Stock-based compensation expense for Q1 2025 was $13.9 million, a decrease from $20.0 million in Q1 2024. The expense was allocated across cost of revenues and operating expenses. As of March 31, 2025, there was $102.3 million of unrecognized stock-based compensation expense, expected to be recognized over a weighted average period of 2.6 years Stock-Based Compensation Expense (in thousands) | Category | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Cost of revenues | $3,111 | $4,082 | | Sales and marketing | $2,427 | $4,444 | | Research and development | $2,017 | $3,242 | | General and administrative | $6,312 | $8,250 | | Total | $13,867 | $20,018 | - Unrecognized stock-based compensation expense totaled $102.3 million as of March 31, 2025, to be recognized over a weighted average of 2.6 years[65] Note N – Net Income Per Share For the first quarter of 2025, both basic and diluted net income per share were $0.58. This was calculated using a net income of $22.2 million and weighted average basic shares of 38.0 million and diluted shares of 38.2 million. This is an increase from Q1 2024, which had a basic EPS of $0.49 and diluted EPS of $0.48 Net Income Per Share Calculation | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net income (in thousands) | $22,196 | $18,003 | | Weighted average shares, basic (in thousands) | 37,990 | 37,049 | | Weighted average shares, diluted (in thousands) | 38,163 | 37,686 | | Basic EPS | $0.58 | $0.49 | | Diluted EPS | $0.58 | $0.48 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 21% revenue growth to increases in both the number of recurring revenue customers, largely from acquisitions, and the average revenue per user (ARPU). Operating expenses increased across the board due to higher headcount, while amortization expense nearly doubled due to recent acquisitions. Adjusted EBITDA margin remained stable at 30%. The company's liquidity position remains strong, though cash decreased significantly due to the cash outlay for the Carbon6 acquisition and share repurchases Results of Operations Revenues grew 21% YoY, driven by an 11% increase in ARPU to approximately $13,850 and a 21% increase in recurring revenue customers to 54,150, with recent acquisitions being a primary driver of customer growth. Operating income increased 69% to $26.0 million. Adjusted EBITDA grew 22.5% to $54.4 million, with the margin holding steady at 30%. Non-GAAP diluted income per share increased to $1.00 from $0.86 in the prior-year period - Revenue growth was driven by an 11% increase in ARPU to ~$13,850 and a 21% increase in recurring revenue customers to ~54,150[88] - The number of recurring revenue customers increased significantly due to acquisitions, including ~50 from Traverse Systems, ~200 from SupplyPike, and ~8,500 from Carbon6[88] Non-GAAP Financial Measures Reconciliation (in thousands) | Measure | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Income | $22,196 | $18,003 | | Adjusted EBITDA | $54,373 | $44,402 | | Adjusted EBITDA Margin | 30% | 30% | | Non-GAAP Income | $38,013 | $32,501 | | Non-GAAP Income per Share, diluted | $1.00 | $0.86 | Liquidity and Capital Resources As of March 31, 2025, the company's main liquidity sources were $94.9 million in cash and cash equivalents and $63.4 million in net accounts receivable. Cash from operations increased to $40.0 million in Q1 2025. However, cash used in investing activities surged to $147.8 million due to a business acquisition, and cash used in financing increased to $39.0 million from higher share repurchases. The company believes existing cash and operational cash flow are sufficient to meet capital needs for the next twelve months - Principal sources of liquidity as of March 31, 2025, were cash and cash equivalents of $94.9 million and net accounts receivable of $63.4 million[102] - The increase in cash used in investing activities was primarily due to $141.6 million used for a business acquisition[105] - The increase in cash used in financing activities was primarily due to a $23.5 million year-over-year increase in share repurchases[106] Critical Accounting Policies and Estimates There were no changes to the company's critical accounting policies or estimates during the first quarter of 2025. The most critical policies relate to revenue recognition, internally developed software, and business combinations - No changes were made to critical accounting policies or estimates in Q1 2025. Key policies include revenue recognition, internally developed software, and business combinations[100][101] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate and foreign currency exchange risks. A hypothetical 50-basis point change in interest rates would have a $0.1 million impact on investment income. Due to international operations, the company holds assets and incurs expenses in foreign currencies, primarily the Australian dollar, Canadian dollar, and Euro. A hypothetical 10% unfavorable change in all foreign currency exchange rates would result in a $1.1 million impact on cash and cash equivalents held in those currencies - A hypothetical 50-basis point change in interest rates would impact investment income by $0.1 million[112] - A hypothetical 10% unfavorable change in foreign currency exchange rates would impact cash and cash equivalents by $1.1 million[115] - The company has not used forward contracts or currency borrowings to hedge foreign currency risk but may do so in the future[116] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025. There were no material changes to internal control over financial reporting during the quarter. The recently acquired Carbon6 business is currently being integrated and is excluded from the assessment of internal controls, as permitted by SEC guidance - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2025[117] - The internal controls of the newly acquired Carbon6 business are being incorporated and are currently excluded from the internal control assessment[119] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently subject to any legal claims or actions that would have a material adverse effect on its business, financial condition, or results of operations - There are no current legal proceedings expected to have a material adverse effect on the company[122] Item 1A. Risk Factors There have been no material changes in the company's risk factors from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to risk factors have occurred since the last Annual Report on Form 10-K[123] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds On February 4, 2025, the company issued 378,100 shares of common stock as partial consideration for the Carbon6 acquisition, exempt from registration under the Securities Act. During the quarter, the company also repurchased 281,001 shares for approximately $40.0 million, leaving $60.0 million available under the current repurchase program - On February 4, 2025, 378,100 shares of common stock were issued to the sellers of Carbon6 as part of the acquisition consideration[124] Share Repurchases in Q1 2025 | Period | Total Shares Purchased | Average Price Paid per Share | Value Remaining in Program | | :--- | :--- | :--- | :--- | | Jan 1-31 | — | — | $100,000,000 | | Feb 1-28 | 243,556 | $143.68 | $65,005,000 | | Mar 1-31 | 37,445 | $133.50 | $60,006,000 | | Total | 281,001 | $142.33 | $60,006,000 | Item 5. Other Information During the first quarter of 2025, none of the company's directors or officers adopted, modified, or terminated any Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements - No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading plans during Q1 2025[129] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, agreements, officer certifications, and interactive data files - A list of exhibits filed with the report is provided, including certifications and interactive data files[130]